THE MACAU METRO MONITOR

MACAU CASINO OPERATORS LOOK SET TO PULL ACES FOR REST OF YEAR scmp.com

Macau’s casino revenue is growing again, with August being a particularly impressive month. With trough compares for the rest of the year, many are predicting soaring growth figures in the coming months. The financial crisis, Beijing’s visa restrictions, and a credit crunch among VIP junket operators all contributed to the steep fall in earnings by Macau operators last year.

Cost cuts implemented by most casino operators have been effective; the companies are far leaner than before. With speculation mounting that visa restrictions will be relaxed this month, and upcoming calendar catalysts (such as the eight-day Golden Week holiday to mark China’s 60th National Day) boosting traffic, there could be significant mass market growth in the coming weeks and months.

Macau’s Chief Executive Edmund Ho Hau Wah warned on Monday that the public should remain cautious given the “unclear” factors of the financial crisis still affecting Macau. The remarks were made prior to his attendance at the 13th China International Fair for Investment and Trade in Xiamen.

Ho was quoted as saying, “different indices…show that the situation is not too bad, but unclear factors do exist, so we still need to make full use of all types of support the central government has given us, and maximize our efforts to promote economic development and guarantee employment and people's livelihood, efforts that will not be neglected." Ho’s term ends on December 19th, 2009.

GRAND HYATT MACAU AT CITY OF DREAMS OFFICIAL OPENING SET FOR SEPTEMBER 29, 2009 reuters.com

Melco Crown Entertainment, LTD today announced that Grand Hyatt Macau will open on Tuesday, September 29, 2009. The property adds approximately 800 guest rooms to City of Dreams and offers spectacular views over the City of Dreams resort or the west bank of the Pearl River. According to Lawrence Ho, Co-Chairman and CEO of MPEL, “Grand Hyatt Macau is set to become Macau’s most sophisticated luxury conference and special events venue”.

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09/07/09 08:38 PM EDT

THE WEEK AHEAD

The week of the 8th through the 11th, though shortened by the holiday, will not be without some major economic data releases. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

Tuesday September 8

North America: Weekly ABC Consumer Comfort index data will be released on Tuesday. The Treasury will hold a 3 year note auction at 1 PM while the Federal Reserve will release Consumer Credit figures for July in the evening. July Building Permits will be released in Canada.

Europe: Germany will see the release Current Account, Trade and Industrial Production Data for July on Tuesday morning while in the UK Industrial and Manufacturing Production data for July will also be announced.

Asia: In Australia, Retail Trade and Housing Finance figures for July will be issued.

Wednesday September 9

North America: WeeklyMBA Mortgage application data will be released on Wednesday morning, as will EIA oil gas and distillate stock levels as well as ICSC and Redbook figures which were pushed behind one day by the holiday. At 1 PM the Treasury will auction 10 year notes while at 2 PM the FOMC Beige Book will be released. We will be anxious to hear the comments of Chicago Fed Governor Evans when he addresses the Council on Foreign Relations on Wednesday morning as part of an event titled “The Great Inflation Debate". August Housing Starts will also be published in Canada on Wednesday morning.

Europe: German CPI for August will be issued on Wednesday morning with a 7 Billion Euro 2 year Schatz offering will be held at 5:15 AM. In the UK, Trade Balance data for July will be also issued.

Asia: In Japan August CPGI and July Machinery Orders will be released on Wednesday morning. In the Evening South Korea will release August PPI and Australian August Unemployment data will also be released.

Thursday September 10

North America: Census Bureau Goods and Services Trade data for July will be released on Thursday, while Weekly Initial Claims, EIA Natural Gas Stock and Fed M2 figures will be also be released through the day at their normal times. At 1 PM, the Treasury will auction 30 year bonds. Thursday morning will see BOC rate announcements and Merchandise Import and Export data for July released in Canada

Europe: In France Industrial Production, Manufacturing Production and Trade Balance data for July will be issued on Thursday morning while august CPI will be issued in both Sweden and Norway. Final Q2 GDP, Consumption, Investment and Trade data will also be released in Italy.

Asia: Indian Weekly Wholesale Inflation figures will be released on Thursday. Japanese Q2 GDP will be released at 8 PM while, later that evening, a slew of critical data will be issued in China including August Exports, Imports, Retail Sales, CPI, PPI, M2 and Industrial Output. We have been writing frequently about the changing nature of internal demand in China, but Export data will be of special interest to us this month as we look for signs that recovery abroad (particularly in the EU) is being felt by Chinese companies.

Friday September 11

North America: August Export and Import Price data will be released at 8:30 AM on Friday, while preliminary Michigan Sentiment figures for September will be published at 9:55 and Wholesale Inventory data for July will be released at 10. At 2 PM the Treasury Budget for August will be announced. In Canada new Home Price Index levels for July will be released.

Europe: Swedish Q2 GDP will be announced on Friday morning. CPI figures for August will also be released in Spain while in the UK PPI for August will be announced. In Italy, Industrial Production figures for July are scheduled for release.

Asia: Japanese Consumer Confidence for august will be issued on Friday morning, as will Indian Industrial Output data for July.

Hedgeye Statistics

The TWIB of Energy

This Week in Baseball, or TWIB, is the weekly T.V. show that provides an overview of what has transpired in the baseball world over the past seven days. It is a must view for any real baseball fan. The Department of Energy of the U.S. Government is an incredible source for primary information about both domestic and international energy markets. The Department of Energy also writes a weekly overview which is called TWIP, or This Week in Petroleum. While much less sexy that TWIB, TWIP is a must read for those following the energy markets. Every week we find a couple of interesting nuggets in TWIP and this week was no different.

As it relates to greenhouse gas emissions, TWIP noted this week that Energy Information Administration is going to start publishing greenhouse emission data on a monthly basis due to increased demand for this data. They also highlighted a few facts from the 2008 report, which was just released. Most notably was the following quote:

“The August 2009 STEO expects that the economic downturn, combined with a significant switch from coal to natural gas as a source of electricity generation in some U.S. regions, will lead to a 5-percent decline in energy-related CO2 emissions in 2009. In 2010, CO2 emissions from fossil fuels are forecast to increase by 0.7 percent, due to an improving economy (see Figure 2).”

This is probably a headline that most environmental groups won’t have us focused on, but it is noteworthy that greenhouse gases will be down almost 5% from 2009. Obviously this is partially due to the economy, but, as noted above, we are also starting to see a real impact from the transition from coal to natural gas. This is a key longer term trend for natural gas demand that we need to keep front and center, especially as the news around natural gas is currently overwhelmingly bearish and any incrementally bullish data points could change the tone of that market.

Another interesting data point was related to the pricing of gasoline and diesel. Both gasoline and diesel are well below last year’s prices. Diesel is currently priced at ~$2.67 per gallon, which is $1.45 below last year’s price. While gasoline is priced at ~$2.61 per gallon, which is $1.07 below year ago prices. From a consumer spending perspective though, as Howard Penney has been highlighting, there has been a dramatic increase year-to-date of both gasoline and diesel prices. On the margin, this has obviously tightened the consumer’s ability to spend since the beginning of the year.

The final noteworthy data point was related to the inventory data. On aggregate petroleum inventories remain above their five year average and above year ago levels. Crude oil inventories are slightly above the five average and gasoline inventories are slightly below, but distillate inventories are still dramatically above year ago levels and the five year average. In fact, distillates (primarily diesel and heating oil) are at almost 50 days of supply versus 30 days from a year ago. The implications of this oversupply is likely negative for the margins of refineries in the intermediate term.

Daryl G. JonesManaging Director

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09/04/09 02:03 PM EDT

HEAD IN THE STARS

Research Edge Position: Short Japanese equities via EWJ

The wife of presumptive DPJ Prime Minister Yukio Hatoyama has been receiving heavy media coverage in the west in recent days, with special attention being paid to her belief that she was abducted by aliens in her sleep and transported to another planet. Unfortunately for Japanese taxpayers, our initial read on the economic measures being pushed by the victorious Democrats after their historic win is that Mrs. Hatoyama may not be the only member of her household with a head in the stars.

With pre-election proposals that ranged from cash incentives to induce more couples to have babies in an attempt to stem the generational tsunami about to blast the Japanese pension system to reductions in highway tolls to get people on the road and spending, we anticipate that the new government will accelerate the growth of domestic Japanese government debt and accomplish little. Although the DPJ hasn’t even taken office yet the writing already seems to be on the wall; the fundamental weaknesses in the fabric of the Japanese economy have yet to be addressed meaningfully by leadership of either party.

Our strategic thesis on Japan is long, involved and makes for depressing reading. Our tactical thesis on Japan is short, simple and makes for some good trades: Yen UP/Stocks Down. In the first chart below we have illustrated this relationship over a three year horizon. In the second chart we have illustrated the way our models line up in the near term for the Nikkei. We are currently short Japanese equities via EWJ and may have gotten in a little too early –but there is nothing but downside from here as far as we can tell barring a declining Yen.

Andrew Barber

Director

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09/04/09 11:09 AM EDT

US Employment: Making A Higher High

As Howard Penney alluded to in this morning’s Early Look, today is all about the employment report. As always, what happens on the margin matters, and the rate of change in August unemployment is significant. As the chart below shows, at 9.7%, unemployment accelerated 30bps after declining 10bps to 9.4% in July. Additionally, on an absolute basis, 9.7% makes a higher high.

The jump in unemployment is bearish for the US dollar. Perversely, if the dollar is down everything priced in dollars will reflate, to a point. The reality is that stagflation is being discounted due to expectations in joblessness and for this reason you’re seeing gold up 4.6% on the month.

The equation is easy: as unemployment rises, growth will stagnate. We believe this number plays into our Q4 INFLATION ROTATION call, or an increase in reported inflation in Q4.

The dollar is currently testing our trading level. As a reminder, our immediate term TRADE line is at 78.51. We’ll continue to monitor the USD and how the market digests this unemployment number.

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